# Two Equities Correlation Analysis

This model provides you with a quick lookup of cross correlation between two equities. Please specify two instruments to run the correlation.

#### Specify exactly 2 symbols:

Can any of the company-specific risk be diversified away by investing in both Wells Fargo and DOW at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing Wells Fargo and DOW into the same portfolio which is an essential part of fundamental portfolio management process.

## Diversification Opportunities for Wells Fargo and DOW

 0.29 Correlation DOW

### Modest diversification

The 3 months correlation between Wells and DOW is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Company and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW and Wells Fargo is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Wells Fargo are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Wells Fargo i.e. Wells Fargo and DOW go up and down completely randomly.

## Pair Corralation between Wells Fargo and DOW

Considering 30-days investment horizon, Wells Fargo is expected to generate 2.01 times less return on investment than DOW. In addition to that, Wells Fargo is 1.56 times more volatile than DOW. It trades about 0.02 of its total potential returns per unit of risk. DOW is currently generating about 0.07 per unit of volatility. If you would invest  2,385,102  in DOW on May 7, 2020 and sell it today you would earn a total of  325,996  from holding DOW or generate 13.67% return on investment over 30 days.
 Time Period 3 Months [change] Direction Moves Together Strength Very Weak Accuracy 100.0% Values Daily Returns

## Wells Fargo Company  vs.  DOW

 Performance (%)
 Timeline
 Predicted Return Density
 Returns

## DOW

### Pair trading matchups for DOW

Check out your portfolio center. Please also try Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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